Last week when the RBI permitted banks to allow a moratorium of three months on payment of instalments on all term loans, PSBs started announcing an automatic deferral of instalment for all

"A bank is a place that will lend you money if you can prove that you don't need it."

An American comedian Bob Hope, thus, describes the banking industry in a lighter vein. One may see a glimpse of it in the ongoing covid-19-led economic distress.

Last week when the Reserve Bank of India (RBI) permitted banks to allow a moratorium of three months on payment of instalments on all term loans, Public Sector Banks (PSBs) started announcing an automatic deferral of instalment for all without even looking at the repaying capacity of borrowers. Private sector and foreign banks also obliged. Intentions are indeed noble as the 21-day lockdown has impacted every individual and corporate entities. But many corporates are sitting on cash and can easily pay off debt, so are retail borrowers with a car loan or a credit card loan spent on a foreign holiday. Banks, which are listed entities like some of these corporates, seem to be too generous.

Will India's corporate sector be as generous as banks during these trying times?

Take, for instance, some companies announced buyback of shares after stock prices crashed in last few weeks. It implies companies have enough cash flows to protect the interest of the shareholders. They should ideally be conserving such surplus funds for difficult times ahead. Should such cash rich companies get the benefit of three-month moratorium at the cost of depositors' money?

Banks are not in a charity business. Their obligation to pay interest to depositors or corporate sector (which gives bulk deposits) will not change. They can deploy the interest foregone in interest earning assets, say a personal loan or a working capital loan or at worst park with the RBI for risk free returns. In addition, banks will be forced to borrow short-term funds under the repo window at a price or a cost for meeting their daily liquidity mismatches.

Post the covid-19 disruption, many global banks have suspended dividend payments while corporations are deferring their dividend payment plans this year. In France, the government is toying with the idea of asking companies not to pay dividends to shareholders as they are being helped with taxpayers' money. There is certainly a case for a moratorium on dividend payments here in India as companies are getting help from the banking system, which is indirectly the government money. The RBI has announced a huge liquidity package of Rs 3.74 lakh crore , which will have future implications for the monetary policy management especially managing inflationary expectation and interest rate direction.

Many global CEOs from Walt Disney to Marriot Hotel have decided to take salary cuts. Most of airline CEOs, the worst affected industry, are foregoing part of their salaries. In India, a handful of CEOs from Indigo's Ronojoy Dutta to Paytm founder Vijay Shekhar Sharma, many have decided to take salary cuts. But the corporate sector, last known for adding three billionaires a month last year, is yet to follow suit in a big way.

It is not to say that the Indian corporate sector is not doing enough for fighting the covid-19 battle. But things like buy backs, high dividends and compensation that includes bonuses and ESOPs should be avoided in these challenging times when the banks have been asked to take a hit. If the covid-19 curve doesn't flatten soon, the government or the RBI may have to ask banks to make more sacrifices in future in terms of restructuring of loans and other waivers.

In the US, the market saw its President Donald Trump using some strong words and also invoking special powers against General Motors to start manufacturing ventilators for meeting public healthcare needs. In India, many corporates have started coming forward to help the government. The likes of Maruti Suzuki, Mahindra and Hyundai are chipping in to make ventilators. Auto maker Ashok Leyland is supplying mask, gloves , body suits and other protective gears. Similarly, an alcohol manufacturer Diageo is helping in sanitisers.

The government is also encouraging corporate to make donations to the PM Cares Fund. The government has also extended the CSR coverage to covid-19 by including promotion of healthcare and disaster management. This will push many corporate to spend more on the current needs of the government. Tata Sons including Trusts have committed Rs 1,500 crore. Reliance Industry has offered Rs 500 crore plus. PayTM has promised Rs 500 crore. The other biggies such as L&T, SBI, JSW, Torrent Pharma and Bharti Airtel are giving Rs 100 to Rs 150 crore each to PM Cares Fund.

At a time when the government (likely slippage in fiscal deficit), RBI (infusing liquidity at the cost of monetary policy management) and bankers (offering moratorium on loans) are sacrificing a lot, there are expectations from the India Inc as well, at least from those with surplus cash.